SBIR Phase I: Incorporating Bidder Budgets in Multi-Item Auctions

This Small Business Innovation Research (SBIR) Phase I project will develop auction software that allows bidders to specify budget constraints, and will assess the feasibility of this software for conducting large-scale multi-item auctions. Multi-item auction design has been at the frontier of research in economics and computer science over the past fifteen years. Yet no existing mechanism enables effective competition when bidders face serious budget constraints. New, sealed-bid designs that enable bidders to specify a budget encourage bidders to place more and higher bids, better reflecting values. Sellers will therefore receive higher prices and assignments of goods will be more economically efficient. In multi-item auctions, bidders often cannot risk outcomes where they may be required to pay more than their authorized budgets. Examples are widespread, ranging from online ad placement to auctions of mineral rights and radio spectrum licenses, and rudimentary technologies to account for Internet ad budgets have already been deployed. There is an immediate need for related budget-based technology physical world auctions where the absence of such technology is reducing the number and level of bids. For example, in sales of oil and gas rights by the US DOI, the average number of bids has been only 1.3 per tract, with losing bidders unable to compete for more tracts due to their need to limit budget exposure. Building on economic analyses of multi-item auctions successfully produced under previous efforts, this proposal will take the next step, creating multi-item auction software that allows bidders to work effectively with limited budgets. These auctions will promote more efficient outcomes and higher revenues for sellers. This research will initially assess the feasibility of software for use in oil and gas leasing, which will be a crucial milestone in bringing efficient auctions to other important markets in both the public and private sectors.